Will it be Groundhog Day for the millionaire's tax?

Less than a year ago, Gov. Chris Christie convened a public ceremony in his office and vetoed Democratic legislation to reinstate an income tax surcharge on high income families --- the so-called millionaire’s tax.

It goes against all economic reason, he said, to increase taxes in a recession and, besides, it was symptomatic of the kind of response that had plagued government for so long --- raise taxes and increase the revenue flow rather than reduce spending.

A year later, Christie may be in the same position.

When he cut some $800 million in aid to local school districts in his fiscal 2010-11 budget, it brought a court challenge contending the reduction was unconstitutional because it failed to comply with the Supreme Court approved funding formula.

The special master appointed to hear testimony in the case ruled this past week that the cuts violated the Constitution and fell disproportionately on low income districts.

His finding was confined to the question of constitutionality and he did not recommend greater funding. In fact, he took note of the state’s fiscal distress and the difficulty of balancing the competing interests seeking public funds.

The case is now back in the hands of the Supreme Court and if it orders a restoration of the funds and maintaining it this year --- some $1.6 billion --- the budget unveiled by the Governor a few weeks ago will be in a shambles.

Moreover, the Court could once again play a central role in determining the level of education aid, a role it thought it had shed when it ruled two years ago that the formula met the Constitutional test provided it was fully funded.

If additional funding is ordered, the door would be open for the Democratic majorities in the Legislature to again approve the millionaire’s tax, re-allocate the approximately $800 million it would produce and announce it had acted responsibly and prudently by bringing the state into compliance with the Court order.

The Governor’s choices would be to ignore the Court’s directive and risk provoking a Constitutional crisis; accept the income tax surcharge, or implement widespread spending cuts and shift the funds to the aid program.

The Court could grant additional time to bring the funding up to formula levels or allow increases to be phased in, an acknowledgement of the state’s difficult budget issues.

There is, of course, no reliable means to determine when the economy will rebound or when employment levels will improve and generate increased tax revenue, so even if a phase in was ordered, it is problematic whether the Court’s terms could be met without great strain on the budget.

The Legislature’s Democrats will surely be unified in support of reinstating the millionaire’s tax, election year or not. After all, polling data have shown consistently that increasing the tax on the wealthiest enjoys the support of a majority of New Jerseyans, as much as seven out of ten, according to one recent survey

The Democrats will be armed moreover with a Supreme Court ruling which they will say cannot be ignored without undercutting the rule of law principle embedded in a representative government of co-equal branches.

It’s not likely that Christie has changed his view of the millionaire’s tax, but as someone whose career has been in the law, his respect for the courts and the legal system is deep and strong. He may disagree with the Court and express his criticism in his unique and colorful fashion, but he is aware that refusing its order would be a risky, establishing a dangerous precedent and opening the way for a confrontation ultimately harmful to all involved.

With the entire Legislature on the ballot this year, the budget/spending/property tax issue will play out in a highly charged political atmosphere.

Democrats, seeking to retain their majorities, will argue Christie failed to fulfill his pledge to control property taxes and, in fact, contributed to increases by ordering cuts in school and municipal aid.

The Governor has, Democrats will contend, kept state spending flat by shifting the tax burden onto homeowners and forcing layoffs of teachers, police and fire personnel as well as cutbacks in municipal services.

Republicans will say that Christie had the courage to tell taxpayers the truth about out of control government spending and possessed the political will to take on entrenched special interests which held sway in Trenton for so long.
The Governor, Republicans will argue, placed state government on a path to fiscal stability and discipline --- qualities which have been lacking and for which taxpayers have paid a hefty price.

While his name will not be on the ballot this November, Christie’s presence will be unmistakable. Mid-term elections have become a referendum on a Governor’s performance --- the first opportunity for voters to express their opinion on the policies of a new Administration.

His response to the Supreme Court ruling in the school funding case will loom large, particularly if he finds a copy of the millionaire’s tax on his desk when he arrives for work some morning.
Carl Golden is a senior contributing analyst with the William J. Hughes Center for Public Policy at Stockton College.